As governments, businesses and individuals become more concerned with environmental, social and governance (ESG) issues and greater regulation is introduced, the risk of ESG disputes increases. While it’s now looking like Client Earth’s recent claim against directors of Shell PLC may not proceed, others will surely follow, and the case has brought into sharp focus the personal exposure of directors to the risk of ESG disputes. Policyholders may wish to dig out their directors’ and officers’ (D&O) insurance policies and ask: “Am I covered?”

Against this backdrop, Oliver Ingham and Aaron Le Marquer consider the possible ESG risks directors may face, whether D&O policies are likely to cover them and how D&O insurers may respond to this increased risk going forward.


What is D&O insurance?

Directors’ and officers’ insurance is designed to protect directors and officers of a company from loss resulting from claims made against them in their capacity as directors and officers in the discharge of their duties. This could arise out of claims by the company itself, shareholder actions, regulatory investigations, competition disputes and/or claims by liquidators. D&O cover is designed to insure against losses such as payment of legal expenses and damages.


What ESG-related risks do directors face?

Due to the broad and evolving nature of ESG issues, the risks for directors are wide-ranging. Below are just some examples of possible disputes that may arise:

  • Shareholder claims, which could include derivative claims by activist shareholders (such as the claim against Shell) or broader securities litigation based on, for example, misrepresentations by the board on ESG issues.
  • Regulatory investigations and penalties brought by bodies such as the Financial Conduct Authority relating to, for example, failure to meet regulatory obligations.
  • Supply chain issues where companies and their boards may be held accountable for ESG-related failings of a supplier or subsidiary, for example, in relation to emissions or workplace safety.
  • Employment claims brought against directors, particularly in relation to issues such as discrimination and diversity and inclusion.


Will directors be covered by their D&O policies?

Where claims are brought or threatened against directors, the individuals in question will want to know they have immediate access to coverage of legal representation costs, which may be significant and beyond the resources otherwise available. Whether coverage is available will depend on the facts of the claim and the terms of the policy. However, insurers may seek to deny coverage based on the following common exclusions.

  • Conduct: this would exclude cover in situations where a court has found that the insured has acted illegally, dishonestly and/or fraudulently. This may apply in cases such as those involving misrepresentations. However, a D&O policy would likely provide for legal expenses for the insured up to the point at which a finding is made by the court, meaning the insured is treated as innocent until proven guilty.
  • Pollution: claims arising out of pollution are often excluded from D&O policies. This may be particularly relevant in environmental/climate disputes involving, for example, allegations of excessive carbon emissions. Where insurers seek to rely on this type of exclusion, disputes will likely arise between policyholders and insurers regarding the definition of “pollution” and how widely these clauses can be interpreted. The scope of the exclusion may be limited to losses directly arising from pollution, such as clean-up costs. Or, they may extend more widely to any claim directly or indirectly connected with pollution or environmental contamination, which may potentially capture many ESG claims against directors.
  • Property damage/bodily injury: this will often be excluded from D&O cover and may be relevant to claims involving environmental disasters or workplace safety. Again, while these exclusions may cause difficulties, the scope of the exclusion may be narrow or broad in the same way as the pollution exclusion. Cover may be provided for legal expenses for defending claims, even if not for payment of damages.

While these exclusions may apply under D&O policies, many companies will have alternative cover for specific risks, such as pollution, under which directors and other senior managers may also be insured as individuals. Nevertheless, one issue directors and officers should consider is whether their D&O cover applies where a company brings a claim against its own directors.


How will D&O insurers respond going forward?

When considering the extent of D&O cover and premiums, insurers will take into account the risks associated with operating the company. Traditionally, the focus has been on financial performance. Insurers would therefore consider the company’s financial statements and results, whether a company is publicly or privately traded, the company’s business activities and the industry/sector in which it operates (financial, pharmaceutical, and other highly-regulated industries are generally seen as higher risk).

While these factors continue to be important in the underwriting risk assessment process, insurers will now additionally need to consider ESG issues such as:

  • ESG-related disclosures and credentials, including any representations the company has made to the market in this respect
  • Exposure to supply chain issues
  • Whether a company has activist shareholders.

Companies operating in highly ESG-exposed industries, such as energy, will likely be considered even higher risk from a D&O perspective. Insurers will also likely seek to draw exclusions for issues such as pollution as widely as possible to include, for example, emissions claims.



The rise of ESG-related disputes is yet another possible liability for directors and officers to keep in mind. While D&O insurance should provide some comfort, as highlighted above, difficulties regularly arise when claims are notified. As well as preparing for more stringent underwriting and possibly higher premiums on renewal, policyholders may wish to review their policy terms to understand the extent of coverage, any notification requirements and other policy conditions and be ready for coverage disputes in respect of ESG-related claims.



You can find further information regarding our expertise, experience and team on our Policyholder disputes page.

If you require assistance from our team, please contact us.



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